Got talking about matters economic and financial this morning on the phone with the brother who speaks my language. Like millions of others are doing right now, brother Gordon was bemoaning the sudden plunge in the value of his RRSP. That’s Canadian for 401(k).

He was saying that it looks like he’s shovelling money into a black hole, because every time he checks his balance it has dropped by much more than what he puts in it every month.

“I’m thinking about cashing all the stocks in and simply buying a guaranteed income certificate,” he said. “That way, at least I’ll stop the bleeding and have something left when I retire.”

I didn’t have to tell him anything he didn’t know already: that retirement money is for retirement and not for day-trading, that he should just ride it out, and that if the worst happens, we’re all screwed anyway.

It was mid-January, 1995. The Asian financial crisis was still about three years away, but as far as anyone could tell right then, the worst was already happening. The Hang Seng Index, the leading indicator of shares in Hong Kong, had been falling for months. A property bubble had burst about a year before, so people who’d bought apartments during the boom years were now being forced to either walk away from deals or face paying out mortgages costing much more than the current value of the flat. Everyone had stopped buying, apartment prices were crashing, and there was no end to it in sight.

Sound familiar?

Then on January 17, 1995 the Great Hanshin Earthquake struck Kobe, Japan. As the leading market in the region, Tokyo plunged about 1,000 points. Other markets including Hong Kong spiraled down with it, the notorious Nick Leeson‘s desperate and ultimately futile attempts in Singapore to prop the Nikkei up in the following weeks led to the collapse of Barings Bank… but that’s another book, movie and talk-show tale.

I remember thinking as I was watching the numbers wither while cutting those famous pictures of the elevated roadway that fell onto its side that any market reaction to this has got to be overdone. That feeling was reinforced after a Chinese colleague came back to the studios with a quote in English from a stock analyst who’d said: I think the market is headed for the worst period in its history, and I wouldn’t advise anyone to buy stocks right now.”

When I got to the counter, an old Chinese lady was at the counter next to me shuffling some papers. Stealing a glance over her shoulder, I could see they were paper stock certificates in the bank we were standing in: HSBC. Oh my God, I thought. Here’s this withered old lady who probably keeps her cash in a shoe box thinking the roof is going to cave in, so she’s selling her stocks in a panic, and I’m down here to buy them.

It wasn’t that long until payday, so I cleaned out my savings account and stuck it all in the bank stock. I hadn’t been able to save a fortune by then, but I thought what the hell. Things can’t get much worse than this.

As it turned out, that day was very close to an historical low point for the Hang Seng Index and its leading stock, HSBC.

Ha-hah, I’m such an investment genius, right? Wrong!

When the market bounced back about 30% only a few month later, I sold the lot, thereby taking in a decent profit but losing out on what has since then turned out to be gains probably 10 times as great.

Moral of the story: you can’t predict the future, but you can make the present one hell of a lot more enjoyable if you quit worrying about it, let go of the greed and fear, and just go with the flow. At the end of the day, we’re all dead anyway.

Speaking of withered old ladies in Hong Kong, here’s one with the little red-haired girl, taken on the dock at Lamma Island only days before we left.

I think we should re-think investment and go back to a more old-fashioned concept of owning shares as being a part owner rather than speculating in appreciation. Is it a business you want to be a part of?

Lilian – that’s the best way to invest. It always used to bother me when I’d read articles in the financial pages that gave not a thought to where your money would actually be used, only how much you could make from your investments.

@UTP – I wish we could define tough times having never lived through the Dust Bowl or the Great Depression.

Oh, lovely LRHG looks like a Buddha baby next to that wonderful woman. What a splendid photo. My sister is like your brother. She said she was going to sell everything. Actually, she said that four months ago, so if she did it then, it’d be better than doing it now. But, gee, I hope my patience is rewarded. I am being an ostrich at the mo’.

Hi Muse. They both look like they’re going with the flow, that’s for sure. :-)
And going with the flow is what I’d prefer to call it rather than head in the sand. You do know what’s going on, you can’t predict the future because even the pros can’t, so you just stand back and watch everyone else get worried about it. I dunno… maybe I’m just complacent.

I love reading your posts when they are about Hong Kong. I’m not quite sure why. I seem to have a special attachment to this city. Also, what a cute baby! I was much too young in 1995, but I do know that my dad was heavily affected during that financial crisis. But he always tells me to have “faith” in Hong Kong.
I think it’s the same for this crisis. I think out of all countries, Hong Kong will bounce back the fastest. I’d give it three years, most other countries, I’d give five years.
ANYWAY! I do agree with you to some extent about we need to stop worrying so much.

It sounds like you did just the opposite of “just go with the flow” – I always thought the secret was to go against the trend. If everyone is signing up to study x, sign up to study y. If everyone is selling. You buy. If everyone is buying, you sell or buy something else.

Bingo, Indie! The old Chinese lady was trading out of fear, I was out of greed. That’s how the markets have always operated, and right now we’re in maximum fear mode. I guess what I’m saying is that it doesn’t interest me one way or another any more because I refuse to get caught up in it. No more greed, no more fear = no anxiety.

Interesting trade dude! Gordon should manage his own RRSP and get out of the herd. Asset allocation is the key. If he put 20-30% in fixed income, and trades the balance in an S&P ETF, trading on the Golden Moving Average 50 day 200 day crossover with stops, he will do well in the long term, and stop out on big downturns. Nothing is certain, but it is a sound back tested methodology. And, it requires very little maintenance, check it once a week or so! He’ll beat 90% of the managed funds at minimim! At the rate the index is moving today, he might have to wait 9 months for a buy signal. The most imporant rule about self management is to move a larger allocation every year to fixed income 5+ or so years leading up to retirement.

There’s nothing quite like watching all this from the perspective of freely-chosen downward mobility. While I labor in the boatyards on fiberglass and wooden beauties that must be maintained – just in case the markets head farther south and it becomes necessary to sell the boat as well as the stocks – I see people becoming very nearly unhinged at the thought of losing their second home or having to give up the climb up Machu Picchu.

Worrying about a college education, food on the table or prescription meds is one thing. Worrying about whether you can get that second Lexus is another. Me? I just get up and go to work in the morning remembering the words sung by that great American philosopher, Janis Joplin: “Freedom’s just another word for nothin’ left to lose”.

Linda, despite the pain this recession/depression is going to cause people who didn’t have much to begin with, perhaps that’s the best thing that will come out of it: a reassessment of our priorities, a rediscovery that we can do without excess and still be happy.